Gillaspie Brothers Outfi tters sells
equipment to outdoors enthusiasts. Sam Gillaspie, the companyâs president, just received the
following income statement reporting the results of the past year.
hunting camping fishing total sales revenue $1,250,000 $3,600,000 $2,380,000 $7,230,000 Variable cost of goods sold 850,000 2,340,000 1,904,000 5,094,000 Fixed cost of goods sold 115,000 188,000 166,000 469,000 = Gross profit 285,000 1,072,000 310,000 1,667,000 Variable operating expenses 170,000 576,000 238,000 984,000 Fixed operating expenses 80,000 84,000 73,000 237,000 Common fi xed costs 60,000 130,000 97,000 287,000 Operating income ($ 25,000) $ 282,000 ($ 98,000) $ 159,000
Sam is concerned that two of the companyâs divisions are showing a loss, and he wonders if
the company should stop selling hunting and fi shing gear to concentrate solely on camping
gear.
Required
a. Prepare a segment margin income statement. Fixed cost of goods sold and fi xed
operating expenses can be traced to each division.
b. Should Sam close the hunting and fi shing divisions? Why or why not?
c. Sam wants to change the allocation method used to allocate common fi xed costs to
the divisions. His plan is to allocate these costs based on sales revenue. Will this new
allocation method change your decision on whether to close the hunting and fi shing
divisions? Why or why not?
Gillaspie Brothers Outfi tters sells
equipment to outdoors enthusiasts. Sam Gillaspie, the companyâs president, just received the
following income statement reporting the results of the past year.
| hunting | camping | fishing | total | |
| sales revenue | $1,250,000 | $3,600,000 | $2,380,000 | $7,230,000 |
| Variable cost of goods sold | 850,000 | 2,340,000 | 1,904,000 | 5,094,000 |
| Fixed cost of goods sold | 115,000 | 188,000 | 166,000 | 469,000 |
| = Gross profit | 285,000 | 1,072,000 | 310,000 | 1,667,000 |
| Variable operating expenses | 170,000 | 576,000 | 238,000 | 984,000 |
| Fixed operating expenses | 80,000 | 84,000 | 73,000 | 237,000 |
| Common fi xed costs | 60,000 | 130,000 | 97,000 | 287,000 |
| Operating income | ($ 25,000) | $ 282,000 | ($ 98,000) | $ 159,000 |
Sam is concerned that two of the companyâs divisions are showing a loss, and he wonders if
the company should stop selling hunting and fi shing gear to concentrate solely on camping
gear.
Required
a. Prepare a segment margin income statement. Fixed cost of goods sold and fi xed
operating expenses can be traced to each division.
b. Should Sam close the hunting and fi shing divisions? Why or why not?
c. Sam wants to change the allocation method used to allocate common fi xed costs to
the divisions. His plan is to allocate these costs based on sales revenue. Will this new
allocation method change your decision on whether to close the hunting and fi shing
divisions? Why or why not?
